CHINA: July Loan Prime Rate PREVIEW

• Today sees the decision on the China Loan Prime Rate (LPR) is important because it serves as a benchmark interest rate for lending in China, influencing both loan and mortgage rates.
• The China Loan Prime Rate (LPR) is important because it serves as a benchmark interest rate for lending in China, influencing both loan and mortgage rates. Changes to the LPR can impact borrowing costs for businesses and consumers, potentially affecting economic growth and financial stability. 
• It is unlikely that the Commercial Banks will submit any changes to aid in the preservation of their margins, which have been pressurized.  The PBOC has not changed its policy rates since May and given second quarter GDP in line with projections, there appears no immediate need for a cut in rates. 
• The PBOC appears to be happy to use the 7-day reverse repo rate as its main tool at present.  

RBNZ dated OIS pricing is slightly firmer across meetings ahead of today’s Q2 CPI data. 

• 16bps of easing is priced for the August meeting, with a cumulative 30bps by November 2025.

Figure 1: RBNZ Dated OIS Today vs. Prior (%)

Source: Bloomberg Finance LP / MNI 

USD/CNH tracks near 7.1790 in early Monday dealings. The pair didn't shift much in Friday's session, with recent ranges still holding. Spot USD/CNY finished up at 7.1746, while the CNY CFETS basket tracker rose for the 6th straight session on Friday, to 96.14, per BBG. 

• For USD/CNH spot, we are largely tracking sideways. We haven't tested the 50-day EMA resistance on the upside, which current rests near 7.1925.  Earlier July lows were near 7.1500, but more recently, the pair has been supported on dips sub 7.1700.
• A slight downtick in US-CH yield differentials at the end of last week likely helped curb USD/CNH upside. Still, broader yield differential trends will remain dominated by US yield shifts.
• In the equity space, the CSI 300 closed at fresh highs back to Nov last year on Friday. The China to global equity ratio is trending higher, another CNH support point.
• Prospects for a return to previous large scale stimulus measures in the housing sector remain quite low, although broader sell-side consensus put such prospects as fairly low, with China now focused more on quality rather quantity when it comes to housing sector upgrades. Local real estate stocks have no been a key driver of recent aggregate market shifts.
• Today we have the 1yr and 5yr loan prime rate decisions, no change is expected.